China and Japan show hints of healing, rest of Asia still struggling
Sydney, July 1
Growth in China’s services sector picked up in June while big Japanese companies planned to ramp up spending at the fastest pace in a decade, offering hope that prospects are improving for Asia’s largest economies despite sluggish factory growth.
Today’s data fuelled expectations that the wobbly global economy may start levelling out in the second half of the year, but the outlook remains murky, with fears that Greece’s debt crisis could splinter the eurozone and worries about whether China can avoid a stock market crash keeping investors on edge.
Activity in China’s factory sector expanded slightly in June though not as much as expected, official surveys showed, suggesting the economy may be starting to slowly level out after a raft of support measures.
Japanese factories barely expanded but a private report showed a strong pick-up in export orders, while a Bank of Japan survey showed a strong bounce in business confidence and spending plans, a welcome sign for Premier Shinzo Abe’s economic revival strategy which has seen limited success in nudging firms to boost wages and investment.
“When you have two of the biggest economies in the world showing positive readings, that is encouraging. They also come on the back of some good readings out of the United States,” said Craig James, chief economist at CommSec in Sydney.
Yet, reports from South Korea, Taiwan and Indonesia provided a more sobering read that still pointed to challenging conditions for many economies in the region.
The unending uncertainty over Greece also dampened confidence, though Asian markets held up well today.
Similar activity surveys are due from Europe and the US later in the day.
Though Greece makes up only about two per cent of the eurozone economy, fears of contagion to other weak EU members could overshadow recent signs that businesses are in better shape.
In the US, the ISM factory PMI is expected to accelerate, reinforcing views the Federal Reserve could start raising interest rates in September, though a healthier US economy is not giving as big a boost to Asia’s exports as in the past.
To be sure, Asian exporters and global policymakers have made the same bad calls over and over again before, betting that advanced economies will recover strongly, but sustained turnarounds have repeatedly proved elusive.